Other Cases of Interests

There are other cases of interest that relate to the duties of company Directors, some of which have been initiated by ASIC.

Austin J in ASIC v Vines [2005] NSWSC 1349 in reference to the Courts jurisdiction to relieve a trustee from personal liability for a Breach of Trust stated at [63]:

“The trustee provision was originally introduced in England by s 3 of the Judicial Trustees Act 1896, and is now found in s 85 of the Trustee Act 1925 (NSW), which has preserved the word “reasonably”. There were, in 1906, some similarities in the exposure to liabilities of company directors and trustees. Trustees were then, and continue to be, exposed to strict liability in various circumstances. Trustees who misapply trust assets (by, for example, paying a non-beneficiary) or who act outside the terms of the trust instrument and legal authority (by, for example, making an unauthorised investment) may find themselves exposed to liability however honestly and carefully they have acted, and even in circumstances where they have acted on legal advice (see Underhill and Hayton’s Law Relating to Trusts and Trustees (14th edn, 1987), Article 56). Similarly, company directors were until recently exposed to liability if they caused their company to act ultra vires or contrary to restrictions in the articles of association. An example of this kind of liability may be found in Re Claridge’s Patent Asphalte Co Ltd [1921] 1 Ch 543, where Astbury J used the statutory exoneration provision to relieve the director from liability.”

Austin J also noted at [58] that paid professional trustees are unlikely to obtain relief if the have not acted honestly, reasonably and have failed to seek advice and directions from the court.

The weight to be given to payment raises for consideration the comparison between the exoneration provisions of the Corporations Act and the Trustee Act. Under the latter, paid professional trustees are unlikely to obtain relief (Partridge v Equity Trustees Executors & Agency Co Ltd [1947] HCA 42; (1947) 75 CLR 149 at 165). But company directors and officers occupy a more entrepreneurial position than trustees. Bearing that in mind, it has been suggested that the court will be “a little less severe” in the case of company directors and officers than in the case of trustees: Manpac Industries Pty Ltd v Ceccattini [2002] NSWSC 330; (2002) 20 ACLC 1304 at 1313.

Austin J also made reference to another case initiated by ASIC in relation to the conduct of the Directors of Waterwheel Holdings Pty Lyd where the Directors had allowed the company to trade whilst insolvent. One of the Directors was John Dorman Elliott. At [48] Austin J stated:

In ASIC v Plymin (No 2), the extent to which the defendants had fallen short of discharging their duties and the degree to which their conduct was unreasonable were very influential factors in the trial judge’s decision to decline relief. Mr Plymin’s conduct was not only “unreasonable and inexcusable” but also “reckless and grossly negligent” (at [101]). Mr Elliott, though “significantly less culpable” than Mr Plymin, had engaged in a “sustained and continuous course of inexcusable and unjustifiable neglect” of his duties as a non-executive director, showing “continuous disregard for the position of unsecured creditors” (at [107]).